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The annual inflation rate in the eurozone dropped more than expected to 2.4 per cent in November, the slowest pace since July 2021. The decline provides relief to consumers and raises hopes for rate cuts in the future, amid tensions between investors and central bankers.
Data published by Eurostat revealed that lower energy prices and reduced growth in food and services prices were the main factors behind the slowdown in the harmonized index of consumer prices.
Economists had anticipated a more modest slowdown to 2.7 per cent, prompting investors to adjust their bets on when the European Central Bank might start cutting its deposit rate, potentially as early as next April.
However, ECB president Christine Lagarde cautioned against declaring victory in curbing inflation, emphasizing that wage pressures remain strong and are a key factor driving domestic inflation.
According to Fabio Panetta, continued weakness in economic activity could accelerate the fall in inflation and necessitate a period of tight monetary policy for only a short duration. It is also expected that headline inflation may rise slightly in the coming months due to base effects.
The Organization for Economic Cooperation and Development (OECD) forecasted that the ECB may not start cutting rates until 2025 due to persistent price pressures.
Inflation within the eurozone varies widely, with energy prices in the bloc falling at close to a record rate in October. However, growth in the prices of food, alcohol, and tobacco decelerated, and core inflation, which excludes energy and food, also slowed. Unemployment remained at a record low of 6.5 per cent across the bloc in October.
